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Economic Breaker Panel: How We Know the Fed is Still Too Tight

What’s in Today’s Report:

  • Economic Breaker Panel:  How We Know the Fed is Still Too Tight

Futures are modestly higher following news of a new Brexit agreement.

The EU and Britain have agreed to a new Brexit deal that solves the Northern Ireland border issue.  However, it remains unclear if the deal can get through Parliament, and remember that Parliament killed the last Brexit agreement between Britain and the EU

Economically, British Retail Sales slightly missed estimates (flat vs. (E) 0.2%) but that’s not moving markets.

Today focus will be on earnings (some notable reports include MS: $1.10, PM: $1.35 and UNP: $2.29).

Additionally, there are several economic reports including (in order of importance): Philly Fed (E: 7.1), Industrial Production (E: -0.2%), Jobless Claims (E: 210k) and Housing Starts (E: 1.3M).  Broadly speaking, the stronger the data, the better for stocks.

Did the Fed Just Restart QE?

What’s in Today’s Report:

  • Did the Fed Just Restart QE?

Stock futures declined overnight after China said it would take countermeasures to the passage of a pro-Hong Kong bill by the U.S. House, further complicating the U.S.-China trade relationship while hopes for a Brexit deal faded.

There were no market-moving economic reports overnight.

Today, there is one key economic report to watch: Retail Sales (E: 0.3%) and two second tiered reports due to be released: Business Inventories (0.3%) and the Housing Market Index (E: 68). There are also two Fed officials scheduled to speak: Evans (9:00 a.m. ET) and Brainard (3:00 p.m. ET) that could potentially move markets.

Investors will also be looking for any further developments on the latest escalation in tensions between the U.S. and China as the trade war remains a major influence on stocks and broader risk assets.

Shifting from macro to micro, the start of earnings season will continue today with BAC ($0.68), PNC ($2.80), ALLY ($0.98), USB ($1.11), and BK ($0.99) all reporting ahead of the bell while NFLX ($1.05), IBM ($2.64) and CSX ($1.01) will release results after the close.

Earnings Season Technical Preview

What’s in Today’s Report:

  • Earnings Season Technical Preview
  • Empire State Manufacturing Survey Takeaways (Released a Day Early)

Stock futures have pulled back from overnight highs after China requested the U.S. reconsider $50B in tariffs just as investor focus had shifted from the trade war to earnings.

Economically, the Business Expectations component of the German ZEW Survey was not as bad as feared (-22.8 vs. E: -29.4) which is bolstering EU shares this morning.

There are no economic reports today however there are two Fed speakers to watch: Bostic (9:00 a.m. ET) and Daly (3:30 p.m. ET), while there are a slew of companies due to report quarterly results today as earnings season gets underway.

Notable corporations reporting earnings today include: JPM ($2.44), C ($1.96), GS ($5.03), WFC ($1.15), UNH ($3.75), and JNJ ($2.00) ahead of the open and UAL ($3.93) and JBHT ($1.44) after the bell.

Trade Truce

What’s in Today’s Report:

  • Is A Trade Truce a Bullish Gamechanger?  No.  Here’s Why.

It’s green on the screen and futures are 1% higher as optimism for a U.S./China trade truce surged after the close.

President Trump said talks went “very well” yesterday and will meet Liu He in the White House at 2:45 p.m. today and a trade “truce” with no more additional tariffs is expected.

Economically, the only notable number was German CPI, which met expectations at 1.2% yoy.

Markets will be focused on any trade headlines as that’s clearly the most important topic today.  From a timing standpoint, I’d expect some sort of announcement on the outcome of the negotiations between lunchtime and the close, as Trump is meeting with He at 2:45 p.m.  At this point, a trade truce with some elimination of pending tariff increases is fully expected and anything less would be a disappointment.

Away from trade, we get Import & Export Prices (E: -0.1%, 0.0%) as well as Consumer Sentiment (E: 92.0), but unless the later is very bad, neither number should move markets.  There are also several Fed speakers today including Kashkari (8:00 a.m. ET), Rosengren (1:15 p.m. ET) and Kaplan (3:00 p.m. ET) but none of them should move markets.

Trade Meeting Preview (Good, Bad, Ugly)

What’s in Today’s Report:

  • U.S.-China Trade Talks: Good/Bad/Ugly (and Best)

S&P 500 futures jumped as much as 1.4% in early morning trade after Bloomberg reported that China is willing to discuss a “partial U.S. trade deal despite tech blacklist.”

The risk-on rally has faded moderately however as the article pointed out that Chinese officials are not optimistic and would only accept a partial deal if the next waves of U.S. tariffs are canceled.

Furthermore, China is willing to make non-core concessions like ramping up purchases of U.S. ag products but won’t budge on key issues like intellectual property theft, issues which the White House has said are critical to a deal.

The trade war will clearly continue to dominate the markets today as we have already seen in the sizeable pre-market moves however there are a few additional potential catalysts to keep an eye on.

Economically, the August JOLTS report will be released shortly after the Wall Street open (E: 7.181M) while Powell and George are scheduled to speak at 11:00 a.m. ET (note Powell did move markets yesterday by mentioning balance sheet expansion).

In the afternoon, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET which could move the yield curve and ultimately the stock market before the FOMC Meeting Minutes will print at 2:00 p.m. ET.

A Warren Presidency and Markets

What’s in Today’s Report:

  • What Would a Warren Presidency Mean for Markets?

Stock futures reversed from overnight gains and are now decidedly lower with EU shares after the Trump administration expanded its “blacklist” to 20 Chinese companies and Chinese officials said to “stay tuned” for retaliatory measures.

Economically, the Chinese Composite PMI firmed to a multi-month high of 51.9 last month (although the services component was mildly underwhelming) and German Industrial Production was not as bad as feared (0.3% vs. E: -0.1%), while the NFIB Small Business Optimism Index was inline.

Today, there is one economic report to watch in the morning: PPI (E: 0.1%) and then the Treasury will hold a 3-Yr Note Auction at 1:00 p.m. ET (auctions have had an impact on the yield curve recently and as a result, moved markets).

Later in the day, there are a few notable Fed speakers: Evans (1:35 p.m. ET), Powell (1:50 p.m. ET), and Kashkari (5:00 p.m. ET), and while investors will watch Powell’s speech closely, the main influence on markets remains the trade war this week and as such, traders will continue to be most sensitive to any further developments or statements released by the White House or Beijing.

Is a Bad ISM PMI Really Worth a 3% Pullback?

What’s in Today’s Report:

  • Jobs Report Preview
  • Is A Bad ISM Really Worth a 3% Pullback?

Futures are enjoying a modest oversold bounce despite more trade noise and disappointing economic data.

On trade, the U.S. imposed $ 7.5 billion worth of tariffs on the EU following a WTO ruling.  But, while the headline is scary, this was widely expected and not a new negative.

Economic data was soft again as Japanese and EU composite PMIs and the UK services PMI all missed estimates.

Today the focus will be on economic data and the key report is the ISM Non-Manufacturing Index (55.4).  If it badly misses expectations, concerns about a broader economic slowdown will grow further, and that will weigh on stocks again.  We’ll also be watching Jobless Claims (E: 215K) for any signs of slowing in the labor market.

There are also several Fed speakers today, but with rate cuts expected, I doubt they will say anything too material.  Speakers today include:  Quarles (8:30 a.m. ET), Mester (12:10 p.m. ET), Clarida (6:35 p.m. ET).

A Gutsy Contrarian Call

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • A Gutsy Contrarian Call

It is a mixed start to Q4 today as U.S. stock futures are modestly higher, Asian shares rallied overnight following a rate cut by the RBA (although Chinese markets are notably closed for a holiday), while European markets declined on soft economic data.

September Manufacturing PMI data remained decidedly weak in Europe with Germany’s headline index notably falling from 43.5 to 41.7, the lowest since June 2009. Inflation in the Eurozone meanwhile remains weak with the core HICP figure meeting estimates at 1.0% year-over-year.

Looking into today’s session, there are three economic reports to watch this morning: PMI Manufacturing Index (E: 51.0), ISM Manufacturing Index (E: 50.0), and Construction Spending (E: 0.3%) and a busy schedule of Fed speakers: Clarida (8:50 a.m. ET), Bullard (9:15 a.m. ET), and Bowman (9:30 a.m. ET).

Beyond those potential catalysts in the morning, markets will remain focused on the political drama surrounding the impeachment proceedings by the House against Trump as well as any further updates on the U.S.-China trade war as the latter continues to be the single most important influence on global markets right now.

Repo Market Update (Not Fixed Yet)

What’s in Today’s Report:

  • Repo Market Update (Not Fixed Yet)

Futures are modestly higher on more U.S./China optimism following a quiet night of actual news.

U.S./China trade talks are officially scheduled for October 10th and 11th and rhetoric from both sides remains positive ahead of the event.  At this point, a pretty comprehensive U.S./China trade truce is fully expected by the market.

Economically, EU Economic Sentiment and Chinese Industrial Profits both slightly missed estimates although neither number is moving markets.

Today there are two notable economic reports, Durable Goods (E: -1.2%) and Core PCE Price Index (E: 0.2% m/m, 1.8% y/y) and we need to see a “Goldilocks” result of solid Durable Goods (to ease fears about business spending and investment) and tame inflation (Core PCE Price Index is the Fed preferred measure of inflation and it needs to print sub 2%).

There are also two Fed speakers today, Quarles (8:30 p.m. ET) and Harker (12:00 p.m. ET), but neither should move markets.

Presidential Cycles and Markets

What’s in Today’s Report:

  • The Presidential Cycle and Financial Markets

Futures are higher with most overseas markets thanks to positive trade headlines and easing Brexit concerns.

Treasury Secretary Mnuchin said last night that Chinese Vice Premier Liu He will travel to Washington for high level trade negotiations in two weeks and that China has encouragingly made significant agricultural purchases so far this week.

British courts ruled the suspension of Parliament by Boris Johnson unlawful, reducing odds of a no-deal Brexit.

Today, there are a few economic reports to watch: S&P Case-Shiller HPI (E: 0.1%), FHFA House Price Index (E: 0.2%), and Consumer Confidence (E: 133.6) and no Fed speakers are scheduled to speak.

There is however a 2-Yr Treasury Note auction at 1:00 p.m. and the results have recently led to sizeable moves in the bond market and subsequently influenced stocks, so there is a potential for volatility in the early afternoon.